MUMBAI: The spot rupee hit a fresh record low of 79.92 to the dollar on Thursday amid a stronger dollar even as the local unit breached the 80 mark on the offshore non-deliverable forward (NDF) market after data showed India’s merchandise trade deficit widened to a record $ 26.18 billion in June.
The currency unit pared some of its losses to close at 79.88 to the dollar. Forex market analysts like KN Dey of United Financial Consultants expect it to weaken further or 80.30/50 in the near term owing to the dollar index strengthening to 22-year highs against a basket of six of the world’s leading currencies such as the Euro and Yen.
However, Dey added that post breaching the highly oversold local currency unit could appreciate toward 78.80. Government data showed that June’s record trade deficit, which has reportedly caught the attention of the PMO, was driven by a surge in petroleum product imports by 119% through $8.65 bn, gems and jewellery (25% to $3.53bn) and electronic goods (61% to $1.67bn).
Noting that the correction in crude and edible oil prices due to global recession fears could rein in inflation in India, the Department of Economic Affairs (DEA) in its monthly review for June said, “However, as long as retail inflation in India continues to be higher than RBI’s tolerance level of 6 per cent, as it still is at 7 per cent in June 2022, stabilization policy measures will need to continue walking the tightrope of balancing inflation and growth concerns.”
On the current account deficit, it said, “ If recession concerns do not lead to a sustained and meaningful reduction in the prices of food and energy commodities, then India’s CAD will deteriorate in 2022-23 on account of costlier imports and tepid exports on the merchandise account.” Further, the widening of CAD has depreciated the Indian rupee against the US dollar by 6% from January through June.